ROBERTO A. LANGE, District Judge.
Sioux Falls. Kenworth. Inc., doing business as Isuzu Trucks of Sioux Falls (SFK), sued Isuzu Commercial Truck of America Inc. (Isuzu) asserting various statutory, contractual, and quasi-contractual claims relating to Isuzu's termination of SFK's Isuzu dealership and Isuzu's handling of SFK's claims for payment for warranty-covered service work. After a mixed jury verdict awarding SFK $1,676,000 in damages, Isuzu moved for remittitur, Doc. 148, judgment as a matter of law, Doc. 150, and a new trial, Doc. 154. SFK moved for an award of attorney's fees. Doc. 156. For the reasons explained below, this Court denies Isuzu's motion for a new trial on the condition that SFK accept a partial remittitur of the damages, denies Isuzu's motion for judgment as a matter of law, and grants SFK's motion for attorney's fees.
SFK is a truck dealership located in Sioux Falls, South Dakota. It sells Kenworth, Volvo, and Hino trucks, as well as several trailer lines. Doc. 138-1 at 33. SFK is owned by North American Truck and Trailer (NATT), a holding company that owns seventeen dealerships in four different states. Doc. 138-1 at 32-33, 129-32. William Rush is the president of NATT, and he and his family own the company in its entirety. Doc. 138-1 at 31, 33.
SFK's management includes Rush,
In January 2010, SFK entered into a. franchise agreement with Isuzu to sell and service Isuzu products. Doc. 138-1 at 42; Pl.'s Ex. 4. SFK did not pay Isuzu anything for the franchise agreement, but did purchase its own Isuzu parts, tools, inventory, and signage. Doc. 138-1 at 135. Article V.A.3. of the franchise agreement provided that if Isuzu desired to terminate the agreement for a failure of performance, Isuzu would "endeavor to review" the failures with SFK and would determine, based on a plan proposed by SFK, whether SFK could remedy its failures, and if so, then allow SFK a reasonable amount of time in which to remedy any failure. Doc. 47-6 at 47; Pl.'s Ex. 4. If, however, Isuzu terminated the franchise agreement for one of the reasons listed in Article V.A.2., including SFK's submission of a "false or fraudulent" warranty reimbursement claim, then the review procedure described in Article V.A.3. of the agreement did not apply. Doc. 47-6 at 46-47; Pl.'s Ex. 4. In 2011, NATT's dealership in Rapid City—Black Hills Truck and Trailer—also obtained an Isuzu franchise, which it still has today. Doc. 138-1 at 43, 133-34.
SFK's customer base for Isuzu trucks was mainly local. Doc. 138-1 at 41-42. National companies with a presence in Sioux Falls like Schwan's Company and Fed Ex Corporation would purchase "mega-fleets" of Isuzu trucks elsewhere, so SFK could not easily penetrate the mega-fleet market. Doc. 138-1 at 41-42. Accordingly, SFK only sold six new Isuzu trucks during its approximately, five years as an Isuzu dealer. Doc. 138-1 at 50; Pl.'s Ex. 2. SFK's primary activity as an Isuzu dealer was the sale of parts for and service on Isuzu mega-fleets that were purchased elsewhere but used in the Sioux Falls area. Doc. 138-1 at 47, 50-51.
Dawn Cunningham, a district parts and service manager for Isuzu who oversaw Isuzu's franchise relationship with SFK and multiple other dealerships, testified that Isuzu deemed SFK a "telecontact" dealer, a designation that Isuzu assigned to vehicle dealers in smaller markets. Doc. 138-5 at 12. SFK's status as a telecontact dealer meant that Isuzu would communicate with SFK through email and telephone rather than traveling to Sioux Falls. Doc. 138-4 at 132-33; Doc. 138-5 at 12. Cunningham explained that she would visit a telecontact dealer if asked, but that SFK never made such a request. Doc. 138-4 at 133.
As an Isuzu franchise holder, SFK would do warranty repairs on Isuzu vehicles and then seek reimbursement from Isuzu for such repairs. Vehicle dealers like SFK use a computerized communication system called ICS to submit their claims for warranty work to Isuzu. Doc. 138-2 at 115-16; Doc. 138-4 at 136, 141. Isuzu has a guide that lists the standard repair times allotted for dealers to fix particular issues covered by warranty. Doc. 138-1 at 90; Doc. 138-2 at 106-07; Doc. 138-4 at 136; Doc. 138-5 at 41, 51, 146-47. If the dealer is unable to fix the problem within the standard repair time, it can request payment for these "other labor hours" (OLH) from Isuzu. Doc. 138-4 at 136;
By September 2013, Isuzu and SFK were having issues over the warranty claims SFK submitted. On September 11, 2013, Cunningham emailed Mills about some warranty claims Mills had submitted that were beyond the usual 90-day period for claims submission. Def.'s Ex. 130; Doc. 138-4 at 145-150. Cunningham also asked Mills for the repair orders and other documentation on some of the claims he submitted so that she could determine whether the OLH Mills requested was justified. Def.'s Ex. 130; Doc. 138-4 at. 148. Mills apologized that, the claims were late and said that it would not happen again because he had restructured the service department. Def.'s Ex. 130; Doc. 138-2 at 189. This restructuring included Mills assuming responsibility for submitting warranty claims to Isuzu for work performed by SFK's service department. Doc. 138-1 at 37; Doc. 138-2 at 74, 99-100, 164-66, 189. Before Mills took over, Sarah Lee and then Verlyn Wiertzema submitted warranty claims to Isuzu, and there appeared to be few issues with SFK's warranty work or Isuzu's payment thereof when Lee and Wiertzema were submitting warranty claims. Doc. 138-2 at 164-65.
On September 14, 2013, Cunningham emailed Mills to tell him that she was returning four of the warranty claims discussed in the September 11, 2013 email because Mills had yet to send the repair orders and other documents she had requested. Def.'s Ex. 130; Doc. 138-4 at 150. Mills did not send the requested repair orders and other documents until October 3, 2013. Doc. 138-4 at 150-51; Def.'s Exs. 131-134. Cunningham emailed Mills on October 4 asking for a repair order on a particular claim. Doc. 138-4 at 152; Def.'s Ex. 137. When Mills did not respond, Cunningham emailed him again on October 8 asking, him to send the repair order "ASAP." Def.'s Ex. 137. Nearly two months passed before Mills sent the repair order on December 4, 2013. Doc. 138-4 at 153-54; Def.'s Ex. 140. Cunningham emailed Mills the following day saying that she was returning two claims to Mills because they lacked an adequate explanation for OLH. Def.'s Ex. 142; Doc. 138-4 at 155-56. Cunningham reiterated to Mills that claims for OLH required detailed explanations. Def.'s Ex. 142.
On December 17, 2013, Mills emailed Cunningham asking her to increase the rate Isuzu paid for parts SFK used in Isuzu warranty repairs. Def.'s Ex. 210; Doc. 138-2 at 14. Under South Dakota law, the reimbursement a manufacturer pays a vehicle dealer for parts the dealer uses in warranty repairs "may not be less than the current retail rate customarily charged by the vehicle dealer for such parts." South Dakota Codified Laws (SDCL) § 32-6B-61. Section 32-6B-61 states that when establishing a compensation schedule for warranty work, manufacturers "shall rely on the vehicle dealer's written schedule of hourly labor rates and parts and may not obligate any vehicle dealer to engage in unduly burdensome documentation thereof, including, without limitation, obligating vehicle dealers to engage in transaction by transaction calculations."
In late December 2013, Isuzu granted SFK's request for an increase in the hourly rate Isuzu paid SFK for labor on warranty repairs. Def.'s Ex. 267; Doc. 138-4 at 214. Around that same time, Mills emailed Cunningham expressing frustration that Isuzu had not paid a particular warranty claim even though he had submitted a repair order explaining the claim over two weeks earlier. Def.'s Ex. 148. He asked Cunningham if she would be in the office the following day, and Cunningham replied that she would. Def.'s Ex. 148. Cunningham wrote in an email that she was happy to discuss any claims Mills wanted, but Mills never called her. Def.'s Ex. 148; Doc. 138-4 at 158-59.
In early January 2014, Mills emailed Cunningham that SFK's markup rate on Isuzu parts was 66%. Def.'s Exs. 153, 213; Doc. 138-2 at 15-16. He attached four identical invoices as proof of a 66% retail markup rate charged by SFK. Doc. 138-4 at 198-200; Def.'s Ex. 216. Later that month, Cunningham asked Mills for fifty consecutive repair orders to establish the retail rate SFK customarily charged. Def.'s Ex. 217; Doc. 138-4 at 201. Mills neither provided the fifty consecutive repair orders nor ca.' lled Cunningham to talk about her request. Doc. 138-4 at 201-02. Instead, Mills sent Cunningham a follow-up email on February 25, 2014, stating that although he knew Cunningham had requested more information, he "did not have any" and, in any event, "in our state all we need to do is display what our system is set at." Def.'s Ex. 219. Mills reiterated in the email that he would be satisfied with a 66% markup rate on Isuzu parts. Def.'s Ex. 219.
In the spring of 2014, Isuzu requested a meeting with SFK to discuss SFK's sales and warranty claims. Doc. 138-1 at 150-51; Doc. 138-4 at 164 65. Isuzu arranged for Cunningham, Isuzu's central region director Mike Donaldson, and Isuzu's life-cycle business manager Patrick Becker to travel `to Sioux Falls to meet with SFK on May 12, 2014. Def.'s Ex. 113; Doc. 138-1 at 153-54; Doc. 138-4 at 169; Doc 138-5 at 62; Doc. 138-5 at 117-18. Although Michael Rush knew of the planned meeting and Cunningham had sent Mills an email telling him about it, neither man attended. Doc. 138-1 at 151; Doc. 138-2 at 147; Doc. 138-3 at 29-30; Doc. 138-4 at 165; Def.'s Ex. 114. Cunningham, Donaldson, and Becker met with William Rush in his office for approximately an hour and a half. Doc. 138-5 at 68. While discussing the parts markup rate SFK was requesting, Rush told Isuzu that SDCL § 32-6B-61 did not require SFK to provide Isuzu with repair orders to establish its markup rate. Doc. 138-1 at 79-82, 85; Doc. 138-5 at 74, 77; Pl.'s Ex. 9. Rush and the Isuzu representatives also discussed the training of SFK's parts personnel and its service technicians. Doc. 138-1 at 67-69, 119, 160.
After the meeting concluded, Wersal gave the Isuzu representatives a document listing four different markup rates that Black Hills Truck and Trailer used for Isuzu parts. Doc. 138-1 at 154; Doc. 138-3 at 43, 50-51; Doc. 138-4 at 202; Doc. 138-5 at 74, 120; Def's Ex. 222. Wersal later emailed Cunningham that SFK's standard markup rate for Isuzu parts was 58%. Def.'s Ex. 223; Doc. 138-3 at 44. Wersal attached a document listing four different markup rates that SFK used for Isuzu Parts. Doc. 138-3 at 49-51; Def.'s Ex. 223. Cunningham replied that she would forward the information to Isuzu's corporate office and would contact Wersal if she had any questions. Def.'s Ex. 115; Doc. 138-4 at 203.
The day after the meeting with Isuzu representatives, Rush sent Mills a memo saying that the rejected warranty claims should be resubmitted with an explanation of the requested OLH. Pl.'s Ex. 8; Doc. 138-2 at 193. That same day, Donaldson emailed Rush requesting the South Dakota statute saying that said SFK did not have to provide repair orders to establish its parts markup rate. Def.'s Ex. 9; Doc. 138-1 at 85. Rush emailed the text of SDCL § 32-6B-61 to Donaldson, who then forwarded Rush's email to Paul Hirose, an in-house attorney for Isuzu. Pl.'s Ex. 9; Doc. 138-5 at 77-78. On May 15, 2014, Donaldson forwarded Rush an email from Hirose saying that Isuzu was requesting one hundred consecutive repair orders to calculate SFK's parts markup rate. Pl.'s Ex. 9; Doc. 138-1 at 86-87. Hirose asserted that providing 100 repair orders was not "unduly burdensome" under SDCL § 32-6B-61 because the repair orders already existed and should not be difficult to print or download. Def.s Ex. 9; Doc. 138-1 at 86-87. Rush did not respond to Donaldson about the forwarded email from Hirose. Doc. 138-5 at 80.
Later in May 2014, Cunningham sent a mass email to SFK and other vehicle dealers advising that Isuzu had added more training classes and that the dealers' franchise agreements required them to have two fully-trained Isuzu technicians. Pl.'s Ex. 20; Doc. 138-5 at 10.
In mid-June 2014, Donaldson sent Rush an email listing the warranty claims Isuzu had yet to pay and stating that the main problem with these claims was a failure to adequately explain the requests for OLH. Pl.'s Ex 10; Doc. 138-5 at 80. Rush did not respond to Donaldson's email. Doc. 138-5 at 82.
On July 10, 2014, Cunningham emailed Mills about SFK's warranty claim for a transmission replacement SFK had done on a Fed Ex truck back in April. Doc. 138-4 at 174-76; Def.'s Ex. 176; Pl.'s Ex. 61. Cunningham asked Mills to reduce the amount of OLH he was requesting for the transmission replacement, but Mills replied that he did not agree with the proposed reduction. Def.'s Ex. 176; Doc. 138-4 at 174. Cunningham and Mills also exchanged emails in July concerning the training of SFK's technicians. Def.'s Ex. 247; Doc. 138-4 at 226-27. Mills questioned the wisdom of requiring SFK to have two technicians certified on Isuzu vehicles when SFK did not have enough business from Isuzu to keep even one certified technician busy. Def.'s Ex. 247. Cunningham explained that she wanted SFK to have two fullycertified technicians so that there would be no gaps in service if an Isuzu-trained technician went on vacation or left the dealership. Def.'s Ex. 247. At trial, however, Cunningham testified that there was a time in 2014 when none of the twenty to twenty-five Isuzu dealers she supervised had two fully-trained Isuzu technicians. Doc. 138-4 at 241-244; Pl.'s Ex. 36. She also admitted that she did not know how many fully-trained technicians the franchise agreement required SFK to have. Doc. 138-3 at 99; Doc. 138-5 at 10.
On July 29, 2014, Mills submitted a warranty claim to Isuzu that requested 53.1 hours of OLH. Doc. 138-2 at 120-21, 182, 197; Doc. 138-4 at 183-84, 233; Def.'s Ex. 206. Isuzu responded on ICS that the claim was excessive, but did not specifically mention that Mills's claim was requesting 53.1 hours of OLH. Def.'s Ex. 206; Doc. 138-2 at 121, 197. Around that same time, Mills emailed Cunningham asking her why SFK's parts markup rate had not been changed to 58%. Def.'s Ex. 227. Cunningham forwarded Mills the email from Hirose asking for 100 consecutive repair orders and told Mills that Isuzu had yet to receive the requested documentation. Def.'s Ex. 227; Doc. 138-4 at 206.
Mills and Cunningham continued to exchange emails concerning the April 2014 Fed Ex warranty claim until August 8, 2014, when Cunningham wrote the following message to Mills in ICS: "YOU HAVE FAILED TO SUPPORT DOCUMENTATION FOR EXCESSIVE OLH. CLAIM DENIED. RESUBMIT FOR REASONABLE OLH."
On August 11, 2014, Michael Rossetti, the director of field operations for Isuzu, sent Rush a letter expressing concern about the warranty claims Mills had been submitting. Doc. 138-1 at 80; Pl.'s Ex. 11. Rossetti provided Rush with examples of his concerns, including Mills's failure to submit 100 consecutive repair orders to support SFK's claim for a 58% markup rate on Isuzu parts, his July 29, 2014 warranty claim for 53.1 hours of OLH for a job with a standard repair time of 1.1 hours, and his claim for OLH on the April 2014 Fed Ex truck transmission replacement. Pl.'s Ex. 11. Rossetti wrote that although Isuzu was denying the claim for OLH on the Fed Ex transmission because it was incorrect and unsupported by an explanation, Isuzu would reimburse SFK for a reduced amount of OLH if Mills supplied the appropriate information. Pl.'s Ex. 11. Rush forwarded Rossetti's letter to Mills rather than responding himself. Doc. 138-1 at 93; Doc. 138-2 at 42-43; Doc. 138-5 at 177.
By September 3, 2014, Mills had corrected the July 29, 2014 warranty claim so that it now requested 5.3 hours of OLH rather than 53.1. Pl.'s Ex. 60; Doe. 138-4 at 236-38. SFK's entry of 53.1 hours resulted from SFK trying to enter 5.31 hours into Isuzu's ICS system when that system accepted only one digit after the decimal and auto-corrected the 5.31 entry to 53.1. Doc. 138-1 at 109-112; Doc. 138-2 at 120, 182. In a September 9, 2014 email to Donaldson, Cunningham wrote that she didn't think the OLH request of 5.3 hours for this warranty claim "[was] too bad." .Pl.'s Ex. 40; Doc. 138-4 at 238-40.
Isuzu expected SFK to bill repairs covered by Isuzu warranty to Isuzu and not to the customer. SFK followed this practice, although its customer agreements contained language entitling SFK to bill the customer. Doc. 138-1 at 99, 102. In mid-September 2014, after Isuzu had not paid SFK for its April 2014 warranty claim on replacing a Fed Ex transmission, SFK sent a bill for $11,714.87 to Fed Ex stating that Fed Ex's warranty, claim had been denied. Def.'s Exs. 181, 202; Doc. 138-2 at 52-53. Fed Ex is one of the largest customers of Isuzu trucks in the United States. Doc. 138-6 at 135. Fed Ex reported to Isuzu being billed directly for the transmission replacement. Def.'s Ex. 181. Rush explained at trial that Isuzu's refusal to pay the warranty claim prompted SFK to bill Fed Ex directly for unpaid or underpaid warranty work under SFK's customer agreement with Fed Ex. Doc. 138-1 at 99, 102. Rossetti sent Rush an email on October 8, 2014, stating that SFK had neither responded to his August 11 letter nor resubmitted the warranty claims discussed in that letter. Pl.'s Ex. 14. Rossetti further asserted that SFK had violated the franchise agreement by billing Fed Ex for the transmission replacement and that Isuzu had declined to pay for this work because SFK had refused to document its request for OLH. Pl.'s Ex. 14. Rossetti concluded the email by stating "As these matters are urgent and serious, would you please let me know when you will be available this week for a telephone call?" Pl.'s Ex. 14. Rush never responded to Rossetti. Doc. 138-2 at 46-47; Doc. 138-5 at 178-79.
In the meantime, Mills emailed Cunningham saying that South Dakota law did not require SFK to submit 100 consecutive repair orders to establish its parts markup rate. Pl.'s Ex. 15. Mills also wrote that he would resubmit a particular warranty claim but that the claim would become the customer's responsibility if Isuzu did not pay. Pl.'s Ex. 15. Cunningham forwarded Mills's email to Rossetti, who emailed Mills and Rush on October 10, 2014. Pl.'s Ex. 15. Rossetti wrote that the franchise agreement required SFK to perform warranty work for Isuzu customers free of charge to the customers, and that SFK had failed to properly document its warranty claims. Pl.'s Ex. 15. He also wrote that until "Mr. Rush and Isuzu discuss these violations of your Isuzu dealer agreement and your mistreatment of Isuzu customers, all future communications must be with Mr. Rush." Pl's Ex. 15. Rush did not respond to this email. Doc. 138-2 at 51-52; Doc. 138-5 at 180.
On October 16, 2014, Edwin Robinson, manager of dealer development for Isuzu, sent Cunningham and Donaldson an email asking them to read a draft of a termination letter Isuzu planned on sending SFK and then tell him whether they had any issues or concerns with it. Pl.'s Ex. 75; Doc. 138-4 at 240-41. Cunningham replied that the draft letter was "[n]ice" and that her only concern was that the letter mistakenly referred to Mills as SFK's service manager. Pl.'s Ex. 75; Doc. 138-4 at 241.
On October 17, 2014, Isuzu sent Rush a letter stating that it intended to terminate the franchise agreement effective January 23, 2015, claiming that SFK had violated the agreement as well as SDCL § 32-6W45. Doc. 138-1 at 100; Pl.'s Ex. 16. Under § 32-6B-45, a franchisor cannot terminate a franchise agreement "without good cause." SDCL § 32-6B-45. Good cause is defined as "failure by a vehicle dealer to substantially comply with essential and reasonable requirements imposed upon the, vehicle dealer by the vehicle dealership agreement, if the requirements are not different from those requirements imposed on other similarly situated vehicle dealers by their terms."
Isuzu claimed in the October 2014 termination letter that SFK violated § 32-6B-45(7), which states that good cause for termination exists if the vehicle "dealer has engaged in conduct which is injurious or detrimental to the dealer's customers or to the public welfare." SDCL § 32-6B-45(7); Pl.'s Ex. 16. Isuzu stated that SFK had violated § 32-6B-45(7) by submitting "hyper-inflated warranty reimbursement requests," including Mills's request for "more than 50 times the standard labor hours"
At trial, Skinner testified that he signed the termination letter after Robinson drafted it. Doc. 138-6 at 133, 138. He explained that the key factors causing Isuzu to send the termination letter were SFK billing Fed Ex for warranty work and its refusal to communicate with Isuzu. Doc. 138-6 at,133-34, 143-44. Robinson testified that despite drafting the letter, he had never investigated whether SFK had enough work to keep one technician busy working on Isuzu products, never investigated the circumstances surrounding SFK's claim for 53.1 hours in OLH on one repair (which had been corrected to 5.3 hours of OLH by the time of the termination letter), and never asked how many years of experience SFK's parts managers had working with Isuzu parts. Doc. 138-3 at 71, 75-76. When asked during his deposition whether the October 2014 termination letter provided SFK with a sixty-day cure period, Robinson testified that the cure period had started with Rossetti's Auguste 2014 letter. Doc. 138-3 at. 77-78. At trial, however, Robinson testified that Isuzu had determined that a cure period was unnecessary under SDCL § 32-6B-45 and the franchise agreement. Doc. 138-5 at 216, 235, 238. Robinson said that he had reviewed South Dakota law to ensure that the termination was proper. Doc. 138-6 at 30.
Many of the reasons Isuzu gave for terminating SFK came as a. surprise to Rush. He testified that SFK generally scored highly on customer satisfaction surveys Isuzu sent out to SFK's customers. Doc. 138-1 at 59-60. He also explained that Isuzu rarely complained about SFK's performance under the franchise agreement. Doc. 138-1 at 61-66. Indeed, Rush said that the termination letter was the first time Isuzu complained to him that SFK's truck sales or truck. inventory was inadequate, and that the May 2014 meeting was the first time Isuzu raised the training of SFK's personnel. Doc. 138-1 at 65-66, 104, 126. According to Rush, Cunningham discussed the training for SFK's technicians at the May. 2014 meeting, and while Isuzu wanted SFK to have two fully trained technicians, Rush and the Isuzu representatives agreed for SFK to have one. Doc. 138-1 at 67-68, 119, 160. Rush had issued an internal memo recording his understanding to that effect. Doc. 138-1 at 68-69. Rush testified that eight of SFK's technicians had completed at least some of Isuzu's online training modules. Doc. 138-6 at 179-80.
Rush did not respond to the October 2014 termination letter, choosing to sue Isuzu instead. Doc. 138-2 at 54; Doc. 138-5 at 217; Doc. 138-5 at 226. SFK filed an amended complaint against Isuzu in November 2014 asserting eight causes of action. Doc. 47-6. The first cause of action alleged that Isuzu violated, SDCL § 32-6B-45 by terminating the franchise agreement without good cause; the second and third causes of action sought declaratory judgments that Isuzu violated SDCL §§ 32-6B-58 and 32-6B-61 by underpaying SFK for warranty parts and warranty service work; the fourth cause of action alleged that Isuzu breached the duty of good faith and fair dealing; the fifth cause of action alleged that Isuzu intentionally interfered with SFK's business relationships; the sixth cause of action alleged that Isuzu defamed SFK; the seventh cause of action sought a preliminary injunction to maintain the status quo; and the eighth cause of action alleged that Isuzu breached the franchise agreement in how it terminated the agreement. Doc. 47-6.
On January 12, 2015, after service of the amended complaint on Isuzu, Robinson sent Rush a letter concerning the October 2014 termination letter. Pl.'s Ex. 18. Robinson maintained that the termination letter had provided SFK with ninety days' notice of the termination, a cure period in excess of sixty days, and "an invitation to contact [Isuzu] if you had any interest in resolving the bases for termination." Pl.'s Ex. 18. Robinson's letter stated that South Dakota law did not require Isuzu to provide SFK with an opportunity to cure given the reasons for the termination, but that Isuzu was nevertheless "willing to consider providing" SFK with an additional period to cure the breaches listed in the October 2014 termination letter. Pl.'s Ex. 18. "If you have any interest in an additional opportunity to cure," Robinson wrote, "please notify me in writing by the end of the day on Wednesday, January 14, 2015." Pl.'s Ex. 18. Rush did not respond to the letter. Doc. 138-2 at 55; Doc. 138-5 at 238-39. SFK continued to perform some service work on Isuzu vehicles around this time, including replacing an engine in an Isuzu truck belonging to Fed Ex around January 2015. Doc. 138-1 at 116-17. Despite submitting a warranty claim for the Fed Ex engine replacement to Isuzu, SFK never received any payment for the engine or labor. Doc. 138-1 at 117.
Some of the claims in SFK's amended complaint did not make it to trial. The parties stipulated to dismissal of SFK's defamation claim, Doc. 36, SFK abandoned its request for a preliminary injunction, Doc. 74 at 107, and this Court granted Isuzu summary judgment on SFK's claim that Isuzu intentionally interfered with SFK's business relationships, Doc 73; Doc. 74 at 107. This left five claims, some of which were pleaded in a somewhat unclear manner. Although SFK asked for declaratory judgments that Isuzu violated §§ 32-6B-58 and 32-6B-61 by underpaying SFK for warranty work and parts, it also asked for damages "in an amount to be determined at trial" for these alleged violations. Doc. 47-6 at 15-17. SFK's next claim, which was for breach of the implied covenant of good faith and fair dealing, alleged that Isuzu had breached the implied covenant "by its actions as set forth in detail herein." Doc. 47-6 at 17. Ultimately, this Court determined that the best reading of SFK's amended complaint was that the claim for breach of the implied covenant of good faith and fair dealing encompassed SFK's claims that Isuzu had damaged it by underpaying SFK for warranty service work and parts. Doc. 138-4 at 119, 126-27; Doc. 138-6 at 14, 210-11. The parties plainly understood that the alleged underpayment by Isuzu of SFK's warranty claims was a claim framed by the amended complaint.
At trial, SFK sought damages in the form of lost net profits from no longer being an Isuzu dealer, costs of Isuzu parts and inventory, signage expense, not collecting a 58% markup rate on Isuzu parts used for warranty work, not receiving payment for adequate time spent on warranty service work, and not getting paid at all for certain warranty work. Rush was SFK's witness on damages. Rush has an extensive business background, including working as a certified public accountant and operating a business for decades that owns-multiple vehicle dealerships in multiple states. Doc. 138-1 at 31-33. He began his damages testimony by calculating that in 2014, SFK made $159,626.14 in net income from its operation of the. Sioux Falls Isuzu franchise based on new truck sales, parts sales, service, and shop supplies. Doc. 138-4 at 4-32. From there, Rush testified about three potential methods for projecting the damages SFK suffered by losing the Isuzu franchise.
First, Rush explained that in some circumstances, the appropriate value of a business can be calculated by taking the business's annual net income times a multiplier of four to six. Doc. 138-4 at 31-32. Rush testified that applying a multiplier of four to SFK's $159,626.14 in net income resulted in a figure of $638,504.56, while applying multiplier of six resulted in a figure of $957,756.84. Doc. 138-4 at 32. Rush believed, however, that although this multiplier method was a proper way to evaluate SFK's loss of the Isuzu franchise, it should not be used in this case because it failed to take into account the growth rate SFK had been able to achieve. Doc. 138-4 at 32-33.
Next, Rush testified that another potentially valid method for calculating SFK's damages was to multiply the net income in 2014 by an annual growth rate equal to the inflation rate of 3% over a ten-year period. Doc. 138-4 at 35-36. Rush said that Isuzu was SFK's "top performing" product line "in terms of growth rate percentage" and opined that SFK's profits on Isuzu business would have at least matched a 3% inflation rate over the next ten years. Doc. 138-4 at 35. He projected SFK's damages" for loss of the Isuzu franchise under this method as $1,596,261. Doc. 138-4 at 36. But Rush believed that this second method was also deficient because the 3% growth rate was too low and the ten-year period was too short. Doc. 138-4 at 37. Thus, he proposed a third method for calculating SFK's damages.
Under this third method, Rush projected SFK's damages using a fifteen-year period and various growth rates. Doc. 138-4 at 37-52. Rush testified that a fifteen-year period was appropriate because Isuzu has 81% of the market in North America for cab-over utility vehicles and therefore left SFK no alternative for that market but to sell an Isuzu line; Isuzu has "held the number one position" in America for over 29 years; and Isuzu is a "very solid company." Doc. 138-4 at 37. As for the projected growth rate on sales of Isuzu parts, Rush said that he applied a 17% rate during the first five years, a 10% rate during the next five years, and a 6% rate during the last five years. Doc. 138-4 at 43-47, 88. In support of these figures, Rush testified that SFK had experienced a 17% compound growth rate in Isuzu parts purchases between 2010 and 2014. Doc. 138-4 at 43;
David Hall, Isuzu's expert, testified that Rush's damages calculations were flawed and excessive. He opined that the growth rates and profit margins Rush used were too high, while the discount rate was too low. Doc. 138-6 at 65-94. Hall also said that the fifteen-year period Rush used to calculate SFK's damages was unreasonable given Rush's testimony about the market for Isuzu trucks in Sioux Falls being flat, the contentious nature of the parties' relationship, and the fact that the franchise agreement allowed either party to terminate the agreement. Doc. 138-6 at 95-97.
This Court submitted four claims to the jury: the statutory wrongful termination claim (claim I), the breach of contract claim for wrongful termination (claim II), the claim that Isuzu breached the duty of good faith and fair dealing by refusing to pay SFK a 58% markup on parts and failing to pay for adequate hours on warranty work, in violation of §§ 32-6B-58 and 32-6B-61 (claim III), and a claim that Isuzu breached the duty of good faith and fair dealing by withholding payments for warranty service work that was allegedly undisputed (claim IV). Doc. 135. This Court did not submit the declaratory judgment claims to the jury,
The jury returned a mixed verdict. It found in SFK's favor on the statutory wrongful termination claim and awarded SFK $1,600,000 in damages. Doc. 135. The jury also found in SFK's favor on its claim that Isuzu breached the implied covenant of good faith and fair dealing by withholding payments for warranty service work that was undisputed, awarding SFK $76,000 in damages on this claim. Doc. 135. But the jury found in Isuzu's favor on the breach of contract claim, concluding that SFK had committed a failure of performance under the franchise agreement, and that while Isuzu had breached the agreement by failing to follow the termination procedure, SFK would not have remedied its breach of the agreement within a reasonable time. Doc. 135. The jury found partially in SFK's favor and partially in Isuzu's favor on SFK's claim that Isuzu breached the covenant of good faith and fair dealing by violating §§ 32-6B-58 and 32-6B-61. Doc. 135. The jury concluded that SFK did not actually have a 58% markup rate on Isuzu parts as SFK had claimed, but that Isuzu had failed to pay SFK for time that was adequate for warranty service work and that Isuzu's failure, to do so had prevented SFK from receiving the reasonably expected benefits of the franchise agreement. Doc. 135. Nevertheless, the jury did not award SFK any money under the paragraph of the verdict form asking what damages SFK suffered as a result of Isuzu's failure to pay adequate time for warranty work. Doc. 135. The jury's award of $76,000 to SFK on unpaid warranty work evidently included the service time that was at issue in SFK's §§ 32-6B-58 and 32-6B-61 good faith claim. Doc. 138-7 at 81-83. This Court addressed this obvious rationale explaining the jury's treatment of the warranty damages claims. SFK's counsel agreed with the Court, saying that he did not think the verdict was inconsistent, but Isuzu's counsel was cagier in responding "I don't think I could say one way or another." Doc. 138-7 at 82.
Thereafter, this Court entered an interim judgment on the jury's verdict. Doc. 137. As to SFK's declaratory judgment claims, this Court concluded that Isuzu did not violate §§ 32-6B-58 and 32-6B-61 by failing to pay a 58% markup rate and that any further ruling on the declaratory judgment claims was rendered moot by the jury's verdict on the claim for breach of the implied covenant of good faith and fair dealing. Doc. 137.
The standard for granting a new trial under Rule 59 is different from the standard for granting judgment as a matter of law.
Isuzu argues that it is entitled to a new trial based on the failure to assign the burden of proof to SFK on its § 32-6B-45 claim; erroneous evidentiary rulings; SFK being allowed to maintain its declaratory judgment claims; the submission to the jury of claims for breach of the implied covenant of good faith and fair dealing; confusing jury instructions and verdict form; inconsistencies in the verdict; and Rush being allowed to testify about damages.
Isuzu argues that a new trial is necessary because this Court failed to instruct the jury that SFK bore the burden of proving
This Court recognized when settling final instructions that there was no clear answer as to who bears the burden of proof under § 32-6B-45. Doc. 138-6 at 8-9, 223-27. Rather than instructing on the burden of proof under § 32-6B-45 and risking retrial of a long and costly case, this Court decided to instruct the jury in a way where everyone would know whether the burden of proof affected the jury's decision. Doc. 138-6 at 8-9, 224-27. If the jury indicated that the burden of proof would affect its analysis, this Court would decide the issue and instruct the jury accordingly. Doc. 138-6 at 8-9.
South Dakota's pattern instruction on the burden of proof and the preponderance of the evidence, which this Court gave the jury, explains how the burden of proof should factor into the jury's analysis: "In the event that the evidence is evenly balanced so that you are unable to say that the evidence on either side of an issue has the greater convincing force, then your finding upon the issue must be against the party who has the burden of proving it." Doc. 134 at 9; S.D. Civ. Pattern Jury Instrs. § 1-60-10. This instruction is consistent with case law explaining that the principal significance of the burden of proof is that it acts as a tie-breaker when the evidence is in equipoise.
To determine whether the jury found that the evidence was equally balanced, and thus whether the burden of proof would make a difference in the jury's decision, this Court submitted the following verdict form on SFK's statutory wrongful termination claim:
Doc. 135 at 1-2.
Notwithstanding the jury's response to questions 1 and 2, Isuzu maintains that it is entitled to a new trial because the failure to instruct on the burden of proof is per se reversible error. Isuzu's argument is wrong. The harmless error rule applies to erroneous jury instructions, including instructions, or the lack thereof, on the burden of proof.
Isuzu contends that regardless of who bore the burden of proof on the wrongful termination claim, this Court's failure to assign the burden caused Isuzu "irreparable prejudice." Doc. 171 at 13. Isuzu asserts that if it bore the burden to prove good cause to terminate (and this Court never instructed the jury that it did), Isuzu had the "right" to present a rebuttal case and to go first during voir dire, opening statements, the presentation of evidence, and closing arguments. Isuzu's argument again is wrong. Isuzu would not have received these benefits even if it bore the burden of proving good cause for termination under § 32-6B-45. SFK had the burden of proving all three other claims to the jury as well as all damages claims. This Court would not have realigned the parties or restructured the order of proof so that the party bearing the burden on part of one claim could go before the party bearing the burden on three other claims as well as on damages.
Isuzu makes several alternative arguments for prejudice in not having the jury instructed as Isuzu wished. Isuzu claims that it might have argued the § 32-6B-45 claim differently to the jury, for instance, if the jury instructions had allocated the burden of the § 32-6B-45 claim to SFK. For the reasons already explained, the absence of a burden of proof instruction on the statutory wrongful termination claim did not prejudice Isuzu under the circumstances. Isuzu has not cited any cases suggesting that the, inability to argue the burden of proof issue to the jury in a civil case is so prejudicial as to warrant a new trial. Isuzu's assertion that the failure to assign the burden of proof caused it prejudice is unconvincing.
Isuzu's last argument is that because the jury found in Isuzu's favor on the breach of contract claim, "there is strong reason to believe" that it would have found in Isuzu's favor on the statutory wrongful termination claim had the jury only been instructed that SFK bore the burden of proof on the § 32-6B-45 claim. But the jury's conclusion that the evidence favored SFK by a preponderance shows that instructing the jury that SFK bore the burden on the statutory wrongful termination claim would not have made any difference. And, as explained more fully in section II.F. of this opinion, the statutory wrongful termination claim and the breach of contract claim involved different elements and posed to the jury different questions. Given the evidence, it is not surprising that the jury found in SFK's favor on the statutory wrongful termination claim and in Isuzu's favor on the breach of contract claim. Nothing suggests that the jury's verdict was caused by the failure to assign the burden of proof on the statutory wrongful termination claim. Isuzu has failed to demonstrate that the instructions on the statutory wrongful termination claim were in any way wrong or caused it prejudice.
Isuzu contends that this Court made two erroneous evidentiary rulings during the testimony of Edwin Robinson, Isuzu's manager of dealer development who drafted the termination letter that Shaun Skinner signed. First, Isuzu argues that this Court should have allowed Robinson to explain what he had been told about SFK's 53.1 OLH warranty reimbursement claim. On direct examination, Robinson testified that Isuzu's director of field operations, Michael Rossetti, was his source of information for the paragraph in the termination letter addressing the 53.1 OLH claim. Doc. 138-5 at 217;
Doc. 138-5 at 219-20. This Court called a sidebar after SFK's objection, during which Isuzu explained that it wanted to introduce Robinson's testimony concerning what he was told about the 53.1 OLH claim to show the effect this information had on him. Doc. 138-5 at 220. This Court sustained SFK's objection on hearsay grounds. Doc. 138-5 at 220-21. After all, Rossetti had testified separately, and Robinson never spoke with any representative of SFK. Doc. 138-3 at 76.
Isuzu argues in its motion for a new trial that Robinson's testimony was admissible for the non-hearsay purpose of showing why Robinson included information about the 53.1 OLH claim in the termination notice. According to Isuzu, Robinson's testimony concerning what he was told about the 53.1 OLH claim by Rossetti would have shown the "thoughtful process through which Robinson decided to draft" the termination letter. Doc. 155 at 13. Isuzu speculates that the jury then might have decided the statutory wrongful termination claim in Isuzu's favor if it had heard more about how supposedly thorough Robinson had been with respect to the 53.1 OLH claim.
Any error in prohibiting Robinson from explaining what he remembered hearing from his co-employee Rossetti about the 53.1 OLH claim was not so prejudicial "that a new trial would likely produce a different result."
Isuzu's second evidentiary argument is that this Court erred by overruling two of its objections when SFK asked Robinson whether having a certain number of trucks in inventory at SFK constituted an "imminent danger to the public." Doc. 138-6 at 39-40. Isuzu argues that these questions caused it prejudice because they misled the jury on the proper standard under § 32-6B-45. Isuzu's argument is unconvincing. This Court's jury instructions explained the proper standard for termination under § 32-6B-45, Doc. 134 at 10-11, and told the jury that "[s]tatements, arguments, questions and comments by lawyers representing the parties in the case are not evidence," Doc. 134 at 5. Juries are presumed to follow the court's instructions,
Isuzu argues that this Court erred by "interweaving" the declaratory judgment claims into the claim for breach of the implied covenant of good faith and fair dealing. Doc. 155 at 14. According to Isuzu, this Court should instead have dismissed the declaratory judgment claims for lack of jurisdiction.
Isuzu's arguments about the declaratory judgment claims do not justify a new trial. The amended complaint can fairly be read as alleging that Isuzu breached the implied covenant of good faith and fair dealing by underpaying SFK for warranty parts and warranty service work, in violation of SDCL §§ 32-6B-58 and 32-6B-61, as well as failing to pay SFK at all for certain warranty work.
Although the declaratory judgment claims were not submitted to the jury, Isuzu contends that the failure to dismiss these declaratory judgment claims caused it prejudice because it prevented Isuzu "from properly litigating the case." Isuzu has not given any explanation of how it would have tried the case differently had this Court dismissed the declaratory judgment claims, let alone explained how these different trial tactics would have had a probable effect on the jury's verdict. Indeed, based on the jury verdict, this Court ultimately chose not to award further relief under the declaratory judgment counts. There was absolutely no prejudice to Isuzu in how the Court handled the declaratory judgment counts.
Isuzu makes several arguments in its motion for a new trial concerning claims III and IV. These arguments are addressed in the judgment as a matter of law section of this opinion because they are, at bottom, arguments that Isuzu won on claims III and IV.
Isuzu argues that the jury instructions and verdict form were misleading because they used the term "undisputed" when instructing on claim IV, which was SFK's claim that Isuzu breached the implied covenant of good faith and fair dealing by not paying SFK at all for certain warranty work. Isuzu failed to preserve its argument about the term "undisputed" because it never objected to the use of this term.
Isuzu argues that it was inconsistent for the jury to find, on the one hand, that SFK had committed a "failure of performance"
Courts have a "duty to harmonize inconsistent verdicts, viewing the case in any reasonable way that makes the verdicts consistent."
Isuzu also argues that because SFK's breach of contract "establishes a complete affirmative defense" on all contractual claims, including the good faith and fair dealing claims, it was inconsistent for the jury to find in SFK's favor on these claims. This argument fails for the reasons explained in section III.B. of this opinion.
Isuzu argues that it is entitled to a new trial because while SFK offered William Rush (an owner of SFK's holding company and the person primarily responsible for SFK's operations) as a lay witness, he actually offered expert testimony on damages. Isuzu also argues that SFK violated Federal Rule of Civil Procedure 26 by failing to timely disclose Rush as an expert on damages.
Federal Rule of. Evidence 701 governs opinion testimony by lay witnesses while Rule 702 governs expert testimony. Rule 701 allows a witness who is not an expert to offer an opinion when it is: "(a) rationally based on the witness's perception; (b) helpful to clearly understanding the witness's testimony or to determining a fact in issue; and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702." The advisory committee notes to Rule 701 explain that a business owner or officer may "testify to the value or projected profits of the business, without [being qualified] as an accountant, appraiser, or similar expert" when that testimony is based on "the particularized knowledge that the witness has by virtue of his or her position in the business." Fed. R. Evid. 701 advisory committee note to 2000 amendments;
Although Isuzu agrees that business owners can offer lay witness testimony about damages, it argues that Rush crossed the line into expert testimony because he engaged in complex data analysis and relied on sources outside his personal knowledge—such as Isuzu's annual sales report, IBIS World reports, and portions of the report of Phillip Williams, the expert SFK retained—when selecting a 15-year damage period and calculating SFK's growth rate for the Isuzu franchise. As explained in section IV of this opinion, however, this Court is remitting the jury's $1,600,000 award on claim Ito an amount that does not depend on Rush's complex data analysis, his testimony that SFK would have continued to operate the Isuzu franchise for years to come, and his use of growth rates. Thus, if there was any error in allowing Rush to testify about these issues, it ultimately does not harm Isuzu.
Isuzu argues that the late disclosure that Rush would testify about damages prejudiced Isuzu by creating a "massive distraction" during trial, but this argument does not justify a new trial. The trial began on October 25, 2016. Isuzu states that SFK waited until October 3, 2016, to inform Isuzu that Rush, rather than SFK's retained expert Williams, was going to testify about damages. Doc. 183 at 24. Isuzu had challenged whether Williams could testify to his disclosed damages calculation, so SFK's decision not to call Williams caused no prejudice to Isuzu. During a pretrial hearing on October 20, 2016, this Court heard argument concerning Rush's late-disclosed calculation of SFK's damages and ruled that Isuzu could depose Rush about his damages calculation. Docs. 122-23. Rather than deposing Rush during the four days before trial, Isuzu chose to depose him on the evenings of October 25 and 26, for a total of four-and-a-half hours. Docs. 126-1, 126-2; Doc. 183 at 27, 73. Rush testified later during the trial about his damages calculations, and Isuzu had the transcript of the depositions at hand to use in cross-examination. Docs. 126-1, 126-2. These mid-trial depositions of Rush should not have caused a "massive distraction" for Isuzu, who had four very capable attorneys representing it at trial along with additional support staff on site. Indeed, the mid-trial depositions were more disruptive to SFK, because it had just two attorneys and because Rush ended up testifying at trial during the day to issues other than damages and then sitting for a deposition at night. Isuzu's attorneys were well prepared to cross-examine Rush on damages, and Isuzu's damages expert was well prepared to address and critique Rush's calculations. Isuzu's motion for a new trial based on Rush's damages testimony is denied.
Rule 50(b) allows a party that previously moved for judgment as a matter of law to renew that motion after entry of final judgment. Judgment as a matter of law is proper "[i]f a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue." Fed. R. Civ. P. 50(a)(1). In diversity cases such as this, a court considering a motion for judgment as a matter of law typically applies the sufficiency-of-the-evidence standard of the state in which it sits, at least where the state and federal standards are similar.
Isuzu's motion for judgment as a matter of law makes two main arguments. First, Isuzu argues that it is entitled to judgment as a matter of law on the statutory wrongful termination claim because no reasonable jury could have found in SFK's favor on this claim. Isuzu contends that it clearly established that SFK engaged in conduct that was injurious or detrimental to SFK's customers or the public welfare. Next, Isuzu argues that it prevailed on claim III and that it is entitled to judgment as a matter of law on claim IV.
Isuzu's argument for judgment as a matter of law on the statutory wrongful termination claim turns in large part on its interpretation of SDCL § 32-6B-45. Isuzu contends that because the statute does not quantify how injurious or detrimental conduct must be to satisfy subsection (7), any injurious or detrimental conduct is sufficient to terminate a dealership without providing a cure period. Under this interpretation, Isuzu argues, any reasonable jury would have found that SFK billing Fed Ex directly for warranty service work and submitting to Isuzu a claim for 53.1 OLH constituted conduct that was injurious or detrimental to SFK's customers and the public.
In determining the plain meaning of a statute under South Dakota law, courts do not consider statutory phrases in isolation but rather look to the language of the statute as a whole.
Subsections (1) through (7) of § 32-6B-45 list several grounds for termination for which notice and an opportunity to cure are not required, including selling the dealership, bankruptcy of the dealership, moving the dealership without permission, closing the dealership, committing a felony, or engaging "in conduct which is injurious or detrimental to the dealer's customers or to the public welfare." SDCL § 32-6B-45(1)-(7). The lack of a notice and cure requirement for terminations under subsections (1) through (7), along with the fact that the grounds for termination under subsections (1) through (6) are all serious, undercuts Isuzu's argument that any injurious or detrimental conduct, no matter how insignificant, satisfies subsection (7).
In any event, regardless of the degree of injury or detriment required under § 32-6B-45, Isuzu is not entitled to judgment as a matter of law on SFK's statutory wrongful termination claim. As to Isuzu's claim that SFK billing Fed Ex for warranty work was injurious or detrimental to SFK's customers or the public welfare, SFK presented evidence that it fixed the transmission correctly and returned the truck to Fed Ex, Doc. 138-1 at 99; that Isuzu refused to pay SFK for the work on the Fed Ex truck, Pl.'s Ex. 61; Doc. 138-1 at 84, 93-97; Doc. 138-2 at 81-84; Doc. 138-5 at 23; that SFK had an agreement with Fed Ex allowing it to bill Fed Ex for unpaid warranty claims, Doc. 138-1 at 99; that Fed Ex never paid the bill SFK sent it, Doc. 138-6 at 159; that Fed Ex had SFK do work on an Isuzu truck even after SFK sent Fed Ex the transmission bill, Doc. 138-4 at. 59-60; and that Isuzu had given SFK an opportunity in January 2015 to continue operating an Isuzu franchise despite SFK's alleged injurious conduct to Fed Ex, one of Isuzu's most important customers, Pl.'s Ex. 18. A reasonable jury could conclude from this evidence that SFK did not cause Fed Ex any injury or detriment by sending it a bill for the transmission repair.
A reasonable jury could also conclude that SFK's submission of the 53.1 OLH claim was not injurious or detrimental to SFK's customers or the public welfare. SFK offered evidence that the 53.1 OLH claim was a mistake rather than a "false" or "fraudulent" claim as Isuzu argued. Doc. 138-1 at 103-04, 109-111; Doc. 138-2 at 120-22; Pl.'s Ex. 17. Mills testified that he had originally typed 5.31 hours of OLH into the ICS system, but that a computer glitch had moved the decimal one number to the right. Doc. 138-2 at 120, 182. Although Isuzu responded on ICS that the claim was excessive, it did not specifically mention that the claim asked for 53.1 hours of OLH. Doc. 138-2 at 121-22. Mills testified that although he could not remember for sure, he believed that he did not learn that 53.1 OLH had been submitted until September 2014. Doc. 138-2 at 121-22. Mills corrected the 53.1 OLH claim to 5.3 OLH by September 3, 2014, and neither Isuzu nor any of its customers paid SFK for 53.1 hours of OLH.
Isuzu's own testimony on the 53.1 OLH claim revealed that Isuzu was inflating the seriousness of this mistaken submission. Robinson testified that if SFK had corrected the 53.1 OLH claim in September 2014 (it had), he would not have mentioned the claim in the October termination letter (he did anyway). Doc. 138-5. at 217. Cunningham testified on direct examination that Mills had not fixed the 53.1 hour claim for OLH by October 17, 2014, the date Isuzu sent SFK the termination letter. Doc. 138-4 at 186, 234-35. On cross examination, however, when presented with a document that conflicted with her testimony, Cunningham agreed that she knew Mills had corrected the OLH from 53.1 to 5.3 by September 3, 2014. Doc. 138-4 at 237-38. She also admitted that she did not tell Robinson that the 53.1 hour claim had been corrected when he sent her a draft of the termination letter on October 16, 2014, and asked whether she had any concerns with it. Doc. 138-4 at 241. Because a reasonable jury had ample evidence to find in favor of SFK on the § 32-6B-45 claim, Isuzu's motion for a new trial on the statutory wrongful termination claim is denied.
Isuzu contends that it is entitled to judgment as a matter of law on claim III SFK's claim that Isuzu breached the implied covenant of good faith and fair dealing by violating SDCL §§ 32-6B-58 and 32-6B-61—because the jury refused to award damages for Isuzu's failure to pay adequate time for warranty work.
Isuzu also argues that it is entitled to judgment as a matter of law on claims III and IV because SFK failed to present sufficient evidence that Isuzu limited or prevented SFK from being paid for adequate time spent on warranty work and being paid at all for certain warranty work. Isuzu's argument ignores the evidence unfavorable to Isuzu on these claims. Mills explained that Isuzu returned warranty claims at a higher rate than other manufacturers. Doc. 138-2 at 106. Mills estimated that NATT (the holding company of SFK and sixteen other dealerships) had approximately 10% of its warranty claims returned each month, and that Isuzu accounted for about 90% of these returned claims. Doc. 138-2 at 106. He said that Isuzu would continue to press SFK for more details about a warranty claim even after he had supplied Isuzu with the repair order. Doc. 138-2 at 116-17. Rush testified that SFK had a "constant difference" with Isuzu over whether SFK had supplied enough information to support its warranty claims. Doc. 138-1 at 156. Mills described one instance where SFK was not paid anything for an engine replacement despite having followed the engine replacement instruction guide, submitting a detailed repair order along with the ICS comments, and reducing the requested OLH. Doc. 138-2 at 124-33. Mills testified that he would occasionally agree to accept payment from Isuzu for fewer hours of OLH than what was worked so that SFK would at least get paid for its parts and standard repair time hours. Doc. 138-2 at 117. He explained that unlike other manufacturers who would pay the undisputed portion of a warranty claim and then resolve the disputed OLH later, Isuzu would not make any partial payments to SFK. Doc. 138-2 at 109-110;
To be sure, Isuzu offered some evidence that Mills was at least partially responsible for the unpaid warranty claims. Cunningham testified that although before Mills's involvement, SFK would occasionally submit late warranty claims, Cunningham did not have any issues with those claims for OLH. Doc. 138-4 at 143-44. Nor did Cunningham have any complaints about the warranty claims from SFK's sister company Black Hills Truck and Trailer, which were submitted by NATT employee Tom HeHand. Doc. 138-4 at 144. According to Cunningham, the problems with SFK's warranty claims began in 2013 when Mills assumed responsibility for submitting the claims. Doc. 138-4 at 144. She explained that SFK's claims for OLH increased under Mills and that these claims were excessive and unsupported by proper explanations. Doc. 138-4 at 144-45. In Cunningham's experience, Mills also took longer than other dealers to respond to requests for information about OLH. Doc. 138-4 at 156-57.
Nevertheless, the evidence is such that a reasonable jury could conclude that Isuzu limited or prevented SFK from receiving the benefits of the franchise agreement by abusing its discretion to determine whether SFK had adequately explained its requests for OLH and not paying SFK at all for warranty work that was undisputed. As for the damages the jury awarded on claims III and IV, Rush testified on direct that Isuzu owed SFK $159,225.20 in unpaid and underpaid warranty claims. Doc. 138-4 at 59. He testified on rebuttal that SFK had 15 unpaid warranty claims and that the undisputed amount Isuzu owed for these claims was $76,000. Doc. 138-6 at 178. The jury had a sufficient evidentiary basis for the damages award on claims III and IV.
Isuzu's next argument is that its affirmative defense of material breach of contract entitles it to judgment as a matter of law on claims III and IV. At Isuzu's request, this Court instructed the jury that "[a] material breach of a contract, unless it is waived, excuses the non-breaching party from further performance." Doc. 134 at 24. Isuzu asserts that the jury's conclusion on SFK's breach of contract claim—that SFK breached the agreement and would not have remedied any breach within a reasonable time period—means that the jury must have adopted Isuzu's affirmative defense that SFK committed a material breach.
Isuzu's final argument is that SFK's claims for breach of the implied covenant were improper as a matter of law. All contracts in South Dakota contain an implied covenant of good faith and fair dealing.
Isuzu argues that claims III and IV were improper because the franchise agreement and §§ 32-6B-58 and 32-6B-61 fully address the allegations in these claims. SFK alleged in its amended complaint that Isuzu acted in bad faith by rejecting SFK's warranty claims "based upon alleged insufficient documentation, and engaging in a pattern and practice of multiple rejections without basis." Doc. 47-6 at 16-17. Isuzu asserts that its service policy and procedures manual, which the franchise agreement at least partially incorporates, Doc. 47-6 at 40, "directly controls" SFK's allegations. However, the manual's section on which Isuzu relies merely states that Isuzu will pay for all warranty-eligible repairs, identifies the rate of compensation for labor and parts, and instructs dealers how to submit warranty claims on ICS. Pl.'s Ex. 7 at Section 13;
Isuzu's argument that §§ 32-6B-58 and 32-6B-61 supplant claims III and IV fares no better. Although these sections address compensation for warranty repairs, they do not specify the level of detail necessary to support a claim for OLH or Isuzu's ability to withhold the undisputed portion of a claim because of a disagreement about OLH. Isuzu's motion for judgment as a matter of law is denied.
Isuzu moves for remittitur of the $1,600,000 award on the statutory wrongful termination claim, arguing that it is unsupported by the evidence. The traditional federal standard is that remittitur is appropriate "only when the verdict is so grossly excessive as to shock the conscience of the court."
Here, there are two potential standards for determining whether a verdict is excessive under South Dakota law. One standard comes from
Isuzu argues that under
The jury awarded SFK $1,600,000 in lost net profits from no longer being an Isuzu dealer. Doc. 135 at 5. To arrive at this amount, the jury necessarily had to rely on Rush's testimony that SFK would have retained the Isuzu franchise for several years and continued to grow the franchise at a significant rate, if only Isuzu had not wrongfully terminated it. SFK suggests that the jury awarded what appears to be either 1) seven to eight years of damages using Rush's assumptions; or 2) approximately ten years of damages using a year-one loss of $159,000 and a growth rate roughly equal to inflation. SFK also hypothesizes that the jury could have arrived at $1,600,000 by awarding ten years of damages at a lower year-one figure and a high growth rate or fifteen years of damages with a lower growth rate. The problem with SFK's assumptions, and the jury's award, is that the evidence shows that SFK simply did not value the Isuzu franchise enough to perform under the franchise agreement (after all the jury found that SFK was in breach of the franchise agreement and that it would not have cured the breach within a reasonable time period), or to seek to retain it (after all SFK refused to reply to Isuzu's communications in August and October of 2014 addressing issues with SFK's performance), let alone grow it much beyond 2014.
The Isuzu franchise was never going to be a large part of SFK's business. From SFK's perspective, SFK's lines of short-nose conventional trucks sell better in the Sioux, Falls market than the cab-over model Isuzu manufactures. Doc. 138-1 at 144; Doc. 138-1 at 25-26. Thus, SFK chose not to promote Isuzu truck sales like it promoted the sales of some of its other truck lines. Doc. 138-3 at 18-19, 25. In fact, SFK never spent the co-op funds Isuzu allotted it for advertising, Doc. 138-1 at 147; Doc. 138-3 at 28, and did not hang an Isuzu sign until over a year after it got the Isuzu franchise, Doc. 138-4 at 216; Def.'s Ex. 279. SFK sold only six Isuzu trucks total in the approximately five years it was an Isuzu dealer. Doc. 138-1 at 50; Pl. Ex. 2. SFK's vice president of sales Michael Rush not only ignored Isuzu's manager Cunningham when she tried to contact him about SFK's sales or lack of sales of Isuzu trucks, but also chose not to meet with Cunningham and other Isuzu representatives when they traveled to SFK. Doc. 138-3 at 29-30; Doc. 138-4 at 214-15, 217-18. William Rush testified that he had been to dealer meetings for Kenworth and Volvo, but that he had never attended any Isuzu dealer meetings because he did not think the cost was justified. Doc. 138-1 at 137-38. Rush also explained that while Isuzu had asked him to have two service technicians fully trained on Isuzu trucks, he felt that one fully-trained technician was sufficient given the Sioux Falls market for Isuzu trucks. Doc. 138-1 at 67-68. Even so, SFK never had a single technician that was fully trained on Isuzu trucks. Doc. 138-1 at 150; Doc. 138-2 at 144-45. Wersal testified that the sale of Isuzu parts was not a significant enough portion of SFK's business to justify sending any of SFK's employees to do training on Isuzu parts. Doc. 138-3 at 48. And while SFK did profit from selling Isuzu parts and doing service on Isuzu vehicles, the amount of service work SFK did for Isuzu was much smaller than the amount it did for Kenworth. Doc. 138-2 at 140. Rush told Cunningham, Becker, and Donaldson that SFK's outstanding warranty claims with Isuzu were small in comparison to what SFK had outstanding with other manufacturers. Doc. 138-4 at 167-68; Doc. 138-5 at 72, 121.
SFK's conduct in late 2013 and early 2014 shows a level of indifference towards the Isuzu franchise. For example, Mills was at best slow in responding to Cunningham, sometimes waiting months before sending her the documents she asked for. Doc 138-4 at 150-54; Def.'s Exs. 130-34, 137, 140. And the request he and other SFK employees submitted for a parts markup on Isuzu warranty repairs was at best haphazard. SFK first told Isuzu that its standard parts markup rate was 72%, then said it was 66%, and finally settled on 58%, but never bothered to document those figures and could not prove the 58% markup rate at trial. Mills admitted on cross-examination that although he had pulled hundreds of repair orders for Kenworth when asking it for a parts rate increase, he did not do so when SFK requested an increase from Isuzu, even though Isuzu made that request. Doc. 138-2 at 168-69. The documents SFK actually submitted to support the 58% markup rate were unhelpful. Indeed, Wersal agreed at trial that the document he emailed Cunningham to establish that SFK's markup rate was 58% was incomprehensible. Doc. 138-3 at 50-52. As it turned out, SFK did not consistently apply a 58% markup rate on Isuzu parts; Rush and Wersal both testified that SFK would occasionally charge a lower rate. Doc. 138-2 at 19-20; Doc. 138-3 at 50. Isuzu arranged to have three Isuzu representatives travel to Sioux Falls to meet in person at SFK in May 2014 to discuss SFK's sales and warranty claims. Michael Rush, who was the vice president of sales, and Mills, who was responsible for submitting warranty claims to Isuzu, were both aware of the meeting, but neither bothered to attend.
If SFK paid more attention to the Isuzu franchise after the May 2014 meeting, this did not last for long. Rush did not respond to Donaldson's June 2014 email discussing the unpaid warranty claims or Rossetti's August 2014 letter expressing concern about the claims Mills had been submitting. Nor did Rush respond to Rossetti's October 8, 2014 email in which Rossetti said that billing Fed Ex violated the franchise agreement and asked to speak with Rush about this "urgent and serious" matter. And when Isuzu sent Rush the termination letter which, while not providing a cure period at least invited SFK to contact Isuzu if it wanted to resolve the parties' dispute, SFK sued Isuzu rather than responding and attempting to keep the Isuzu franchise.
SFK's conduct and attitude towards the Isuzu franchise did not go unnoticed by the jury, who found that SFK not only breached the franchise agreement, but also would not have remedied the breach within a reasonable time period. Although SFK's breach was not material, it is difficult to believe that a party that could not be bothered to remedy its breach of a franchise agreement would nevertheless go on to operate and dramatically grow the franchise for many years. It is equally difficult to believe that a company would not make some effort to keep a franchise if the company actually thought it could make anywhere near the amount of net profits Rush testified to at trial. The circumstances here—including SFK's limited efforts to train its staff on Isuzu products, its indifferent approach to the Isuzu franchise in late 2013 and early 2014, the refusal to respond to Isuzu's repeated communications making clear there were serious problems with the parties' relationship, and the jury's conclusion that SFK breached the franchise agreement and would not have remedied this breach within a reasonable time period— make the $1,600,000 award, which necessarily depended on the assumption that SFK would have continued to operate and grow the Isuzu franchise for several years, "flagrantly outrageous and extravagant."
With the $1,600,000 award being excessive under state law, this Court can only remit the award to the highest amount the jury could reasonably find.
SFK argues that
Isuzu's argument concerning the $1,600,000 award is that it must be remitted because Rush used an inflated growth rate, an unreasonably large gross profit rate to estimate future parts sales, a discount rate that was too small, and an unsupported fifteen-year damages period. These arguments are inapplicable to the multiplier method employed in this decision to remit the jury verdict. Isuzu also argues that this Court should remit the $76,000 the jury awarded on claims III and IV because this award has no support in the record. As explained in section III.B. of this opinion, there was a sufficient evidentiary basis for the $76,000 award on claims III and IV. Isuzu's motion for remittitur of the $76,000 is denied. Thus, this Court remits the damage award on the statutory wrongful termination claim to $957,756.84 plus postjudgment interest
In diversity actions like this, state law generally governs whether a party may recover attorney's fees.
Determining the amount of attorney's fees that should be awarded starts with the lodestar, which is calculated by multiplying the number of hours reasonably expended by the reasonable hourly rate.
SFK is `requesting $728,584.05 in attorney's fees for work done from the beginning of this case in October 2014 through the April 2017 hearing on the post-trial motions. Does. 158, 168, 169, 180, 181. This $728,584.05 figure represents 1,529.05 hours of work by attorney David Edwards at an hourly rate of $300; 551.5 hours of work by attorney Jeffery Haff at an hourly rate of $425; and 183.02 hours of work performed by several attorneys from Haff's firm at various hourly rates. Docs. 158, 159, 168, 169, 180, 181. SFK also seeks $73,882.99 in costs. Docs. 158, 159, 168, 169, 180, 181.
Isuzu does not dispute the reasonableness of the hourly rates SFK requests, but rather argues that SFK's fees should be reduced because SFK litigated the case inefficiently. As examples of SFK's inefficiency, Isuzu cites to attorney Edwards's supposed inexperience in franchise litigation, the ambiguity of SFK's amended complaint, SFK's late disclosure of Rush's testimony on damages, SFK's billing for tasks that Isuzu asserts to be clerical work, and supposedly duplicative work performed by Haff and Edwards. None of Isuzu's arguments about SFK's alleged inefficiency are persuasive, especially considering that Isuzu staffed the trial with four lawyers and two support staff whereas Edwards and Haff alone tried the case for SFK.
Beyond the alleged inefficiency of SFK's attorneys, the parties' main dispute over the reasonableness of SFK's attorney's fees is whether SFK's fees should be reduced because it did not succeed on all of its claims. Both parties rely on
Here, all of SFK's claims were based on a common core of facts and sought to remedy wrongs arising from the same series of events. This series of events began in or around September 2013 with a dispute over SFK's warranty claims and requested parts markup rate. SFK felt that it was being underpaid while Isuzu believed that SFK was not providing adequate documentation for its requests. The parties met to discuss these issues in May 2014, but the dispute over warranty claims and SFK's markup rate continued unabated. SFK's frustration over not being paid for warranty work on a Fed Ex truck eventually caused it to bill Fed Ex directly. This, in turn, prompted Isuzu to decide to terminate SFK as a dealer in late 2014, listing multiple rationales that SFK felt were contrived, but which had to be addressed at trial. SFK's attorneys could not have litigated the statutory wrongful termination claim without developing and presenting the series of events giving rise to SFK's other claims. Given this overlap, the presence of the other claims in SFK's amended complaint made little difference in the total number of hours and costs billed by SFK's attorneys.
Isuzu argues that even if SFK's claims are related, this Court should reduce SFK's fees because of the "limited success" SFK achieved at trial. According to Isuzu, SFK achieved only limited success because it lost on the majority of the claims in its amended complaint. The
Isuzu also argues that the statutory wrongful termination claim was "merely an afterthought" to SFK's declaratory judgment claims. That argument stretches credulity. The high bar for termination under SDCL § 32-6B-45, Isuzu's failure to provide a notice and cure period, and the potential to recover future lost profits and attorney's fees made the statutory wrongful termination issue SFK's central claim from the very beginning.
Isuzu's final argument is that SFK's attorney's fees should be reduced because SFK blocked resolution of this case. Isuzu contends that SFK could have avoided litigation by, for instance, responding to the termination letter or pursuing immediate injunctive relief so that it could remain an Isuzu dealer. Although these arguments and the other issues raised in Isuzu's briefs may suggest that SFK decided in late 2014 and early 2015 that this lawsuit was worth more to SFK than retaining the Isuzu franchise, they do not warrant reducing the attorney's fees. A plaintiff can still recover reasonable attorney's fees even though it chose not to resolve its case in the manner the defendant would have preferred.
For the reasons stated above, it is hereby
ORDERED that Isuzu's motion for judgment as a matter of law, Doc. 150, is denied. It is further
ORDERED that Isuzu's motion for a new trial, Doc. 154, is denied except to the extent that this Court will conduct a new trial on damages for claim I if SFK refuses the remittitur described herein. It is further
ORDERED that Isuzu's motion for remittitur, Doc. 148, is granted only on claim I to the extent explained above. It is further
ORDERED that SFK's motion for attorney's fees and costs, Doc. 156, is granted. It is finally
ORDERED that SFK has fourteen days from the filing of this Opinion and Order to inform Isuzu and this Court whether SFK will accept the remittitur (at which point this Court will enter final judgment for $957,756.48 on claim I; plus $76,000 with prejudgment interest thereon on the warranty underpayment claims; plus $728,584.05 in attorney's fees and $73,882.99 in costs) or whether it wants a new trial on damages for claim I.
